Danone rejects role as niche player in U.S. water

French food group Danone rejected a role for itself as a niche player in the U.S. bottled water market, but said on Monday it would not embark on a price war to maintain market share at any cost.

In an interview after a news conference to discuss 2001 results, Danone Chairman Franck Riboud insisted he would not jeopardise Danone's margins by taking on Coca-Cola Co. and PepsiCo , which are moving into the bottled water domain.

While Danone is the world's biggest bottled water producer in terms of volume, with 12.5 percent of market share, it is also competing with Switzerland's Nestle on U.S. turf.

Riboud said Danone was not interested in a role as a small specialist player, supplying the U.S. market with its upscale Evian mineral waters and offices with gallon water drums.

Nor would it pull out.

"We won't be a niche player, (but) we will be a player," Riboud said. "The U.S. is going to evolve, it will start to segment. Once they have reached full capacity with distilled water they will move on to other things -- it is a country of marketing."

But he declined to say exactly how he envisaged Danone's role in the United States, where new-found competitor Coke distributes Danone's Evian.

"It's an opportunity to which we have to find solutions, and it doesn't put me in peril. I'm not in the United States in biscuits -- does that damage my position in the rest of the world because I am not?" Riboud said.

Danone, which produces biscuits under its LU brand, said on Monday it had squeezed past U.S. firm General Mills Inc. to become the leading U.S. dairy food producer in 2001.

However the French firm has linked its fortunes far more closely to emerging markets like Mexico, China and Indonesia, which Riboud sees representing 60 percent of future worldwide growth in bottled water, against the United States which will account for 10 percent.

Furthermore, he saw U.S. bottled water prices--already much higher than Europe's--on a declining curve.

"What should I do, make the United States a priority? No way," he said. "Under no circumstances will we let our margins deterioriate by chasing market share."

Water was Danone's fastest growing division in 2001, producing a 7.1 percent sales increase to 3.796 billion euros. Its U.S. bottled water business, excluding home and office delivery (HOD), represents between 1.5 and 2.5 percent of group operating profit, and has accounted for only 3 percent of the group's organic growth between 1998 and 2000.

But Riboud, who in 2000 backed away from expanding Danone's biscuit branch in the United States with targets like cereal-maker Quaker Oats Co. and snack food firm Nabisco , said taking on the cola giants in water would cost too much.